Why did businesses consolidate into monopolies?

• A. To gain greater market power and increase profits by reducing competition
• B. To promote perfect competition in the industry
• C. To decrease their control over prices
• D. To encourage more firms to enter the market

Answer: (A)

Verified step by step guidance

1. Understand the concept of a monopoly: A monopoly exists when a single firm dominates the entire market, facing no direct competition.
2. Recognize the motivation behind business consolidation: Firms may merge or consolidate to increase their market share and reduce the number of competitors.
3. Analyze the effect of consolidation on market power: By reducing competition, the consolidated firm gains greater control over prices and output decisions.
4. Connect market power to profit maximization: With less competition, the firm can set higher prices or restrict output to increase profits.
5. Conclude why businesses consolidate: The primary reason is to gain greater market power and increase profits by reducing competition, rather than promoting perfect competition or decreasing price control.